7 Things That Will Keep You From Going Broke With Your Next Rental

by Vincent King · 4 comments

House for rent

The housing market seems to have turned the corner. Thanks to an upswing, prices are improving slightly, while interest rates are still low enough to encourage real estate investment.

Sure, we saw a slight slip in the housing market recently, but investors are still calling for an upward movement, based on tighter inventories and lower jobless rates.

Don’t get too excited about prices just yet. It wasn’t long ago when the housing crisis hit and foreclosure signs were scattered across practically every street corner in the country. Families that once proudly owned their own homes were now looking for a place to rent. People who already owned rental properties saw BIG profits, but many others are still struggling with big losses years later.

It Hasn’t Been All Bad

As of March 2012, 1.5 million people moved into rental properties — many of them going from owners to renters. That decrease in home ownership pushed rentals, which led to a tightening in market availability and nudged the average rental price higher than it had been in years.

This means that income for rental investors has skyrocketed over the last year and a half. Predictors are saying that it’s going to be another two years before current renters will be able to look at home ownership again, so the trend of price increases will likely continue for a while longer.

Time to Cash In

Heading into a new investment requires study and careful thought. Buying any old place, simply to get a FOR RENT sign on the lawn, can backfire badly and cause your family more harm than good.

Buying a property in a location that won’t rent well means you’ll be paying extra every month, instead of making extra.

Protect yourself by knowing what to look for in your next rental property, so that you don’t risk losing your investment. You deserve to enjoy big gains instead.

Points to Ponder

Crime – Check with the local police department to find out about the area where you’re considering a purchase. If the area is safe, you’ll have a better chance of renting your property. If the area is known for crime and dangerous activity, you’ll likely be paying your own rent.

Property Tax – Making a purchase before you’re aware of the local tax could mean you’ll get less than you’d hoped for from your property. Double check with the tax assessor’s office about the taxes and value of the property. Before making the purchase, make sure the rent you plan to charge will still reap you a large enough return.

Neighborhood – Where you buy is a great indicator of the type of tenants you’ll have. If you don’t mind a high turnover rate, buying near a college or university is always an option. Higher-end neighborhoods reap larger rewards, but they also mean paying more for your purchase.

Schools – Ideally, your property should be in an area with an excellent reputation for education. Poor local schools often give investors a harder time keeping their rentals filled, even though the initial investment may seem lower. After all, renters often have children and parents want to know they’re moving into a quality district.

Average Rental Costs in the Area – Paying top dollar for a home in an area that will give you a smaller return than what you’re paying out is always a poor investment. Look into the details on what your payment should be compared to other properties in the area.

Amenities – Is the home you want to buy in an area that’s close to clean parks, malls, and major intersections? You can use those as selling points when trying to attract new tenants. Being in the heart of the action means you can earn more for your property.

Insurance – Don’t forget to consider how much you’re going to pay in natural disaster insurance. Insurance rates can take a chunk from your rental income, especially if you’re purchasing in an area where you’re required to carry flood, hurricane, earthquake or tornado insurance.

Carefully considering these points will help you choose a property that’s right for you.

Do you own rental property? Any advice you’d like to share? 

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  • How do you find out what the average rent for similar properties in an area is?

    • MoneyNing says:

      Searching for classified ads is a good way. You might also want to go to nearby open houses and talk to the agents to see what they think the current market will bear.

      • Lifeisdynamic says:

        Could also check with local real estate agents for rental information regarding the type of property in which you hope to invest, ie: what the market will pay for that type of property in that area and while you are there, check the demographics for the area, ie – are there more families than pensioners; working couples; young singles. What demographic will suit your property and will there be plenty of the same demographic when you need to re-rent. Can the suitable demographic for your intended property afford the rent ongoing? Ask the local agents, what are the people living in the area looking for in a rental property, eg: some may like room for children to play outside; a garden an some may prefer no other upkeep or outside space; some may like a balcony and a second bathroom. Every area demographic want different things from the home and the area they live in.

  • Good tips, for people looking to buy rental properties as well as those looking to buy homes of their own.

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